Indian equity benchmarks fell on Thursday, stalling a recovery in the final hour of the previous session spurred by the general lack of confidence in risk assets as investors reevaluated the risks of US rate hikes after a number of Federal Reserve policymakers signaled aggressive stance.
The BSE Sensex index fell 230.12 points, or 0.37 per cent, to end at 61,750.60, a day after closing at a record high in the previous session of 61,980.72.
The broader NSE Nifty index declined 65.75 points, or 0.36 per cent, to end at 18,343.90.
Following stronger-than-expected US retail sales figures, Asian markets fell on Thursday, the dollar stabilised and Treasury yields remained depressed as investors reassessed the direction of Fed policy.
The Fed’s stance could trigger “bouts of volatility,” said Prashanth Tapse, Senior Vice President of Research at Mehta Equities.
Global equities were forced to halt their multi-day rally on Wednesday as stronger-than-expected US economic data and a slew of Fed speakers dashed hopes the US central bank could end its rate-hiking cycle earlier than expected, a scenario that has repeatedly played out across global markets in recent weeks.
“We are cognizant that each time global markets attempt to rally on the back of speculation that the end of the Fed’s tightening intentions may be in sight, Fed officials come out with a new paragraph of hawkish narrative, to tamp down any prospect of irrational exuberance,” Simon Ballard, Chief Economist at First Abu Dhabi Bank, wrote in a note to investors, according to Bloomberg.
Hopes for a dovish Fed shift were further dampened by hawkish remarks made by Federal Reserve officials overnight. San Francisco Fed President Mary Daly, who was previously one of the most dovish officials, said a halt was not an option.
“Markets have positioned for the Fed to pivot (but) the U.S. retail sales data very much challenges that narrative,” Commonwealth Bank of Australia’s Currency Strategist Kim Mundy told Reuters.
“The US economy is driven by the consumer and if the consumer is still spending, it suggests it’s going to take inflation longer to ease,” added the strategist.
While bulls might have expected to have the upper hand on easing geopolitical tensions, Ms Daly’s comments pushed Wall Street stocks into the red.
“Fed speakers were clear that a pause is not imminent,” Ted Nugent, a Markets Economist at National Australia Bank, wrote in a client note, reported Reuters.
“Like the resilient spending (retail inflation) numbers, (that) gave little succour for anyone looking for an imminent pivot,” resulting in “a more cautious tone in markets,” he said.
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